The coalition’s Help to Buy scheme is nothing short of taxpayer-funded electioneering. The only people who openly have a good word to say for it are politicians, house builders and estate agents. Everyone else can see it for the cynical disaster in waiting it is. With an election in 17 months time, the government is hell bent on helping house prices rise until then. Any economic growth will be based on debt, as home owners feel better off due to rising property prices and start spending again – it is the same old story. But this time, it will be the British taxpayer left without a chair to sit on when the (low interest rate) music stops.
Help to Buy (1) Equity Share, subsidises the cost of new homes by up to 20% and has even boosted the prices of older homes as it gave the market a psychological shot in the arm. It is said that Help to Buy is only supposed to be a temporary measure, designed to help people buy a home until the banks start lending again, but the evidence is that they already are! Help to Buy (2) Mortgage Indemnity, is not really needed, it will make very little difference to mortgage availability and does nothing except give the lenders an additional 15% comfort zone for potential losses on loans they would have given anyway, all at the expense of the taxpayer.
Help to Buy (1) has resulted in house builders building more homes. Why wouldn’t they? They have a ready supply of subsidised buyers, they are reporting record reservations and profits whilst increasing average selling prices, some by as much as 11% in the last 6 months, without any loss of demand.
The growing evidence is that Help to Buy is already increasing prices. A recent BBC Panorama featured a two-bedroom flat in London priced at £250,000. It had an open viewing day where the agents showed a stampede of over 300 people the property. Within two days an offer was accepted for £320,000, 28% more than the asking price!
House prices are rising, affordability and real incomes are falling. Helping people buy a home they cannot really afford and underwriting these loans, which lenders would otherwise charge higher rates, reflecting the risk, cannot be a good idea.
Historically, the best time to buy a house is in a period when interest rates are high. Rates are unlikely to rise further, the housing market will be subdued and prices will be low. As interest rates fall you pay less each month and the value of your home rises, so it is a double win. Conversely, buying when interest rates are at their current 320-year low and house prices are at their highest levels since just before the 2008 crash, with affordability levels at their lowest, would indicate that now is the worst possible time to buy a home. A house buying perfect storm!
You have to question why the government is encouraging people to buy homes with Help to Buy, when it is obvious that interest rates will go up and house prices will go down? There is a huge potential to bankrupt every person taking ‘advantage’ of Help to Buy. Pump up prices, encourage new buyers to buy at the top and everyone gets financially shafted when house prices normalise as indeed they always do. Negative equity, repossessions it will all be government created this time.
